Question

A longtime policyowner has paid the premiums on his universal life insurance policy, and now it has enough cash value to pay the interest and mortality charges for the remainder of his life. He is now electing to not pay any more premiums. What is this called?

Answer 1

A policyholder with sufficient cash value in a universal life insurance policy can stop paying premiums, as the accumulated amount can cover future costs; this is known as the policy being 'paid up'.

Step-by-step explanation:

When a policyholder of a universal life insurance policy has accumulated enough cash value in their account to cover the costs of interest and mortality charges for life, they can choose to stop paying premiums. This situation is commonly known as the policy being 'paid up' or self-sustaining. The cash value has grown to a point where it can now pay the policy charges through its own earned interest, making additional premium payments unnecessary. Therefore, the policy continues to provide the death benefit without requiring further premium payments from the policyholder.